How best to lower cost of wireless?: Stronger government regulation

The controversy over allowing American telecoms giant Verizon to buy into the Canadian wireless market in the hope of a payoff for consumers has deep echoes in the history of Canadian telecommunications. But while foreign ownership is not new to Canadian telecommunications markets, it has never proven to be the best road to spurring investment and lowering prices.

Lacking strong government leadership, early development of the telegraph in the territories and provinces that would become Canada was heavily dependent upon American capital. But investment was targeted to maximize American profits and interests, and telegraphs in Canada were often built as extensions of much larger American systems. As a result their operations were governed from south of the border and they served American, not Canadian, interests.

In the late 1800s, the Bell Telephone Company of Canada -- an organization controlled by American National Bell -- was granted an exclusive federal charter to develop a Canadian telephone system. Faced with the high cost of delivering service to the sparsely populated regions, and strong competition at local and regional levels, the company quickly abandoned less populated parts of the country. While price wars in cities and towns yielded lower prices for a time, in the face of heavy losses and corporate consolidations they quickly returned to higher levels. Meanwhile, governments and domestic investors were left to develop less profitable markets.

In the middle of the 20th century, American telecommunications conglomerate General Telephone and Electronics Corporation assumed ownership of the British Columbia Telephone Company. Operations were constantly dogged by labour issues, concerns over aging equipment, and customer complaints over service and prices.

History shows that foreign telecommunications companies treat their Canadian operations largely as profit centres, with little regard for local concerns. In practical terms this means minimal investment in both infrastructure and employment, and using facilities and personnel located in the U.S. wherever possible. This disregard for our domestic interests is why we have foreign investment regulations -- regulations that have already been scaled back by the Conservatives with little impact on the problems of high prices and poor service.

While there is some debate as to exactly how high Canadian cellphone prices are compared to other industrialized countries, it is clear the costs of service are not simply the product of a coddled corporate sector. Given our vast geography and relatively small population based largely in a few cities close to the U.S. border, economics overwhelmingly favours building cellphone towers and other infrastructure in those population centres. As a result, service is generally good in metropolitan areas but drops off precipitously once one leaves their fold.

Neither the entry of a foreign company nor market forces alone will change this situation. Under these conditions, another major player in the market would mean a smaller piece of the pie -- and lower profits -- for everyone. Foreign competition might provide minimal price relief for some services in major centres, but at what cost?

For Canadians this could well mean fewer jobs, cutbacks in the range of services available, even less investment for underserved communities, and lower returns on pension funds holding stock in Canadian companies. There are also privacy and security concerns as any traffic routed through Verizon's U.S. network may be subject to scrutiny by the American government. And increased foreign ownership in telecommunications would open the door to foreign ownership in broadcasting, raising a whole other set of sovereignty concerns. These are not the makings of a consumer bonanza.

If lower prices and improved service are the goal, a sounder course of action would be for government to take a stronger hand in enacting regulations that reduce excessive prices and encourage investment in underserved communities. In Europe and elsewhere, regulation has successfully done just that. Given the unique characteristics of the Canadian market, to entrust these responsibilities to a foreign corporation is an abdication of such responsibility, not sound economic policy.

At the very least, the looming wireless spectrum auction, and its invitation to foreign bidders, should be postponed and an inquiry launched into how to secure the best wireless prices and service for Canadians as a whole. As history warns, the best path lies in exercising Canadian control over the system, not selling it off to the highest foreign bidder.

David Skinner is associate professor in the department of communication studies at York University, where he teaches communications policy.

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Updated on Wednesday, August 28, 2013 at 8:11 AM CDT: adds image

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